As you map out your benefits strategy for the coming year, what’s on the menu? Do you have a high deductible health plan (HDHP) with a health savings account (HSA) option? If not, have you considered one? There can be substantial benefits to the employer and the employee as you look at a comprehensive benefits strategy; for example, the tax benefits. There may also be other benefits that aren’t so apparent; for example, if you’re a plan sponsor who fails testing on a recurring basis and as a result struggles with corrective distributions for highly compensated employees each year, the HSA may be the plan design fix you are seeking (and you didn’t even know it)!
Aside from the reasons we have discussed before as to why HSAs may be an attractive option for some employers to supplement the benefits strategy, Congress just took steps that may make this option even more attractive. The U.S. House of Representatives recently passed two bills (H.R. 6311 and H.R. 6199) that would make some substantial changes to HSAs.
Arguably one of the most impactful to workers enrolled in an HSA, is an increase in the limits on annual contributions to the HSA. We've discussed the 2019 limits of $3,500 for an individual or $7,000 for a family plan (with a $1,000 catch-up contribution for those 55+). Under this legislation, there would be an increase in the contribution limits to match the limits on out-of-pocket expenses, which in 2019 will be $6,750 for an individual and $13,500 for a family plan. In other words, an employee would be able to contribute nearly double to an HSA, which for some is a powerful retirement savings tool.
The legislation makes changes to who is eligible for an HSA. The bill allows for workers who are covered by an HDHP, but also covered under Medicare Part A, to be eligible for an HSA.[1] Under the current laws, this is often a surprise for the aging workforce as they approach Medicare enrollment. Additionally, with this bill, if one spouse has a general health Flexible Spending Account (FSA)[2], the other spouse is still eligible to open an HSA, a change from the current rules.
Finally, one other exciting change is expanding the qualified medical expenses that are allowed. The bill would add certain over-the-counter medical products to be treated as qualified medical expenses (meaning they can be paid for by the HSA). Further, certain fitness-related expenses, such as gym memberships would also qualify; the limit would be $500 for an individual or $1,000 for a family plan.
The changes described in this post are not exhaustive, but rather, provide a highlight of a few key provisions. For a more comprehensive overview of the legislation and how it could impact your employees and overall health and wealth strategy, contact Multnomah Group.
And, be sure to keep in mind that for now, these two bills have only passed in the House. We’ll have to wait and see how the Senate feels about these changes as they review later this year. Stay tuned.
Notes:
[1] It is important to note that workers are automatically enrolled in Medicare Part A when they start receiving Social Security benefits.
[2] Don’t forget there are different types of FSAs: general purposes versus limited purpose versus dependent care.
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